Selling tax reform with doom and gloom

By Scott Mooneyham | Mar 06, 2013

RALEIGH — In trying to sell the need to rework North Carolina's tax code, legislative leaders and Gov. Pat McCrory have been pushing the notion that the state has started to fall behind its Southern neighbors.

"Simply put, our competition in other states caught up to us, and many times, we have to admit, beating us," McCrory said in his State of the State address.

Sen. Bob Rucho, a Charlotte Republican who co-chairs the powerful Senate Finance Committee, has been showing charts and graphs depicting the state's economic woes as the disease that tax reform can help solve.

The theme fits well with the notion that these are the new guys in town, that Republicans, with their new ideas, have only recently taken over from Democrats whose old ways had begun to fail.

But are we really falling behind?

The biggest piece of evidence to support the argument is jobs.

North Carolina's jobless rate remains fifth worst in the country, at 9.4 percent, and some of our Southern neighbors have seen their unemployment numbers improve faster since the Great Recession.

The flip side of those numbers is that North Carolina and two other Southern states with high rates of joblessness, Georgia and South Carolina, were among the national leaders in adding new jobs last year. North Carolina, with its 1.71 percent growth in its non-farm workforce, was tied with South Carolina at 15th when it came to job growth last year.

Employment is only one means of judging a state's economic vitality.

Individual income is another, and one sometimes left out of the conversation.

As was the case before and after the Great Recession, North Carolina's per capita and median household income is higher than many of its Southern neighbors.

On a per-capita basis, North Carolina ranks 34th in income, just behind Texas and well ahead of Mississippi, Alabama, Louisiana and South Carolina.

In median household income, North Carolina ranked 39th, with its $43,916 in 2011 putting it above those same states as well as Tennessee and Arkansas.

Interestingly enough, North Carolina is on pace to pass Florida in this measure in another year or two, based on the trend since 2007. Florida has no state income tax.

These income numbers do not paint a complete picture of North Carolina's economic competitiveness. Neither do unemployment numbers.

As for its tax structure, North Carolina's higher corporate tax rate — even if it is only a paper rate not paid by most big corporations — may well hinder economic development and job recruitment.

But any hindrances should be considered in the context of the state's positives. Its strong university and community college system and relatively low property tax rates are a few examples.

There are other reasons to revamp the state's tax code. A shift to a service economy means that the sales tax today misses a large segment of economic transactions.

Then again, making that argument is a bit more difficult than saying that doom and gloom have found us.